One of worst times for fall in house values

A fall of 4.1% in house values from July to the end of September ranks as one of the worst on record, CoreLogic data reveals.

Wednesday, October 5th 2022, 12:19PM

It was only marginally better than the three months to the end of August 2008 when values fell 4.4%, in the wake of the global financial crisis.

On a monthly basis values fell 1.5% during September, easing slightly from the 1.8% fall in August.

CoreLogic research head Nick Goodall says as interest rates have increased, and credit is harder to attain, the housing market is firmly in retreat.

“Despite the rate of decline easing in September, it’s probably too early to suggest the housing market has moved through the worst of the downturn.

“With the OCR expected to increase a further 50 basis points to 3.5% later today, that downwards pressure on house prices is likely to continue.”

Goodall says strong economic performance (low unemployment, strong GDP) and persistently high inflation could see the OCR increase further into 2023, likely prolonging the housing downturn. Restrictive credit rules, such as tight loan-to-value ratios, are also likely playing a role.

Property values continued to fall across all six main centres in September with Wellington continuing to experience the weakest performance. Values across the broader capital area (including the Hutt and Porirua) fell 2.5% over the month and -8.5% over the quarter, to be 9.1% below the same time last year.

“This is a record rate of fall for the region, stretching back to 1990,” Goodall says.

It surpasses the 5.2% quarterly drop at the end of September 2008 which led to the -9.0% annual fall at the end of February 2009.

The same can be said of Dunedin’s three-month fall of 5.4%, surpassing the previous record low of 5.1% at the end of July 2008. However the annual fall of 4% is still some way off the record of 11.0% for the city at the end of February 2009.]

Goodall says the rate of fall in these areas may be heightened due to how stretched affordability became, compared to incomes over the recent house price boom. “Buyers, particularly first home buyers may be unable and unwilling to pay the prices previously expected, especially as mortgage interest rates continue to increase.”

For the other main centres, values continue to decline but the average still remains higher than it was a year ago, with Christchurch values, in particular, 13.6% higher than the end of September last year.

Across Auckland there are signs of the rate of quarterly fall stabilising, with values 4% down for the three months to the end of September, a slight improvement on the fall of 4.6% at the end of August, though it is probably too soon to call it a trend yet.

“Looking into the weakness across Wellington, the impact is relatively broad-based with Wellington city down 8.7% over the quarter and Lower Hutt down 11.9% over the past 12 months, both records for their respective cities,” Goodall says.

“Property values hadn’t fallen as far or as consistently in the Kāpiti Coast District, however after a drop of 1.8% in September, the average value is now 3.7% below the same time last year.”

Values continued to fall across the super city in September, but the rate of decline reduced in many cases, in particular Auckland city where the monthly change of 1% was 1.2 percentage points lower than the 2.2% change in August.

Greater weakness is spreading around the other main urban areas with the majority seeing a fall of more than 1.5% over September, though New Plymouth and Queenstown bucked the trend with minor increases in value over the month.

All areas have seen the average value drop over the past three months however, with particular weakness in the Hawke’s Bay region. Hastings values fell 7.3% over the quarter and Napier declined 6.5%. Both these areas joined Palmerston North as regions where values are now lower than the same time last year.

The Queenstown Lakes District continues to defy gravity and logic with values remaining 12.9% above this time last year, no doubt boosted by the return of tourists and reflecting a distinct lack of land and properties in the adventure capital of the world, says Goodall.

As is often the case, all eyes are on the Reserve Bank. “Increases to the OCR may not pass on fully to mortgage interest rates, with competition strong among the banks and forecast increases in the rate also already ‘priced in’ to short term rates.”

However, he says, with expectations of more increases to come it may be premature to expect the end of the downturn to be any time soon. That said, as long as unemployment remains low, the market is likely to be in an orderly correction rather than outright slump.

Tags: house prices